Management Strategies for a Defined Contribution Pension Fund under the Hull-White Interest Rate Model

DOI

10.2991/amms-17.2017.53How to use a DOI?

Keywords

optimal investment strategy; defined contribution pension fund; stochastic dynamic programming; interest rate

Abstract

This paper analyzes optimal investment strategies for a DC pension fund under the Hull-White interest rate model. Under this model, the pension fund manager can invest capital in the bank account, stock index, and real estates. The dynamics of the interest rate follows the Hull-White interest rate model, and a drifted Brownian motion drives the financial market. The pension fund manager aims to maximize the expected terminal utility of wealth in a complete market setting under constant relative risk aversion (CRRA). This paper derives the Hamilton-Jacobi-Bellman (HJB) equation associated with the control problem using a dynamic programming technique. We obtain the explicit solution for optimal investment policies by solving the HJB equation and optimal value function. The results show that the optimal proportion invested in risky assets is higher in stock than in a real estate.

Copyright

© 2017, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Patrick Kandege Mwanakatwe
AU  - Lixin Song
AU  - Emmanuel Hagenimana
PY  - 2017/11
DA  - 2017/11
TI  - Management Strategies for a Defined Contribution Pension Fund under the Hull-White Interest Rate Model
BT  - Proceedings of the 2017 International Conference on Applied Mathematics, Modeling and Simulation (AMMS 2017)
PB  - Atlantis Press
SP  - 239
EP  - 244
SN  - 1951-6851
UR  - https://doi.org/10.2991/amms-17.2017.53
DO  - 10.2991/amms-17.2017.53
ID  - Mwanakatwe2017/11
ER  -